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The Truth about Trade

RSS By: Dean Kleckner, AgWeb.com

Dean is Chairman Emeritus of 'Truth About Trade & Technology, a nonprofit advocacy group led by a volunteer board of American farmers.

Refuse Protectionism

Dec 05, 2008
Somebody must have neglected to give President Bush the memo suggesting he would be irrelevant post-election. Amid all the interest over the incoming Obama administration, he’s not acting like a lame duck. Instead, he’s still behaving as the leader of the free world.
 
“I recognize I’m leaving office in two months,” said Bush at the Asia-Pacific Economic Cooperation forum a couple of weeks ago. “Nevertheless ... we can send a message: We refuse to accept protectionism in the 21st century.”
 
I hope the world is listening. This is one of the most important messages it must hear as we enter what may be a prolonged downturn.
 
In capitals everywhere, presidents and prime ministers are talking about economic-stimulus plans. They would do well not only to avoid protectionism, but also to lower existing trade barriers.
 
Perhaps the worst thing countries could do right now is turn their backs on free trade and usher in the very opposite of a stimulus. “One of the enduring lessons of the Great Depression is that global protectionism is a path to global economic ruin,” said Bush.
 
As Hillsdale College professor Burton Fulsom Jr. points out in his new book, New Deal or Raw Deal?, the Smoot-Hawley Tariff Act helped turn what might have been a run-of-the-mill recession into the Great Depression. Between 1929 and 1932, as other countries retaliated by erecting their own trade barriers, U.S. exports dropped from $7 billion to $2.5 billion.
 
For farmers, the stakes are especially high, because we rely on export markets for so much of what we grow. Our forebears suffered dearly under Smoot-Hawley and we would suffer again today.
 
The lesson is obvious: In a protectionist trade war, there are no winners.
 
Global leaders seem to understand this, at least judging from their rhetoric. At the Group of 20 meeting in November, they put out an encouraging joint statement: “We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services.”
 
Unfortunately, Russia--a member of the G20--promptly ignored its pledge and slapped new import duties on cars. It defended the move by saying that the decision to impose the tariff had been made before the G20 summit.
 
Struggling American automakers are currently seeking a huge bailout from Washington. Reasonable people may differ on whether this makes sense. Personally, I’m very skeptical. Yet we should all be able to agree that the best solution for the woes of GM, Ford, and Chrysler involves encouraging them to sell more vehicles. Preventing Russia and other nations from building new trade barriers should be a major goal. It has the added benefit of costing U.S. taxpayers absolutely nothing, which makes it the best kind of stimulus plan.
 
The worldwide economic crisis goes far deeper than car sales, of course. Protectionism puts everything at risk. Our leaders not only must fight against new impediments to trade; they should seek to lower those that already exist.
 
The failure to do so will hurt Americans. The Bush administration, for example, has negotiated a free-trade agreement with Colombia. Yet Congress has refused to even consider it. Meanwhile, Canada has concluded its own pact with this Latin American country. Its farmers and manufacturers will now enjoy excellent access to Colombia’s market of 45 million people--and they have a competitive advantage against U.S. products.
 
Congress should put American products on equal footing. It would provide a small but worthwhile stimulus to our economy.
 
At the APEC meeting in Peru, Bush called for a trans-Pacific free-trade zone--a very good, long-term goal. The 21 APEC countries account for about two-thirds of America’s international trade. Improving the flow of goods and services across these borders makes sense.
 
So does pushing for more ambitious gains. The G20 and APEC meetings led to calls for jump-starting the Doha round of world-trade talks. Earlier this year, they collapsed as rich and poor countries bickered over tariffs and subsidies. If they merely could agree to a set of modalities before Bush leaves office, they will have made significant progress toward a final agreement and give Obama a leg-up.
 
The result would be a worldwide economic stimulus package. It wouldn’t cost taxpayers a dime. Doesn’t that sound like a good idea?
 
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade,org
 
 
 
 
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